City Government

Three Actions By Governor Pataki That Dim City Budget Prospects

If anyone needed reminding that cities are creatures of the state, Governor George Pataki has done the job. In a series of late-summer actions and inactions, the governor has added problems to the city’s financial plan adopted in June. First, by going to state court to stop Mayor Michael Bloomberg from refinancing $2.5 billion in city debt, the governor has, at least temporarily, taken $500 million a year in revenues out of the city budget over five years. Second, by delaying or misdirecting action in several public authorities that he controls, Governor Pataki threatens the loss or misuse of additional billions of city tax-revenue and economic dollars. And lastly, his new 16-member school-finance commission is so full of Pataki supporters that even the mild-mannered mayor was outraged, calling it “a cruel hoax,” presumably because its makeup makes the prospect of substantial new state education funding more difficult.

Of course one governor is not necessarily the state. The governor’s court challenge to the city’s bond issue may lose — or lead to some kind of compromise. And the governor’s school finance commission will hardly be the last word in designing a more equitable and sound educational financing system. But the pattern of blocking — or ignoring — city policy decisions is an unsettling pattern as the city continues to experience economic and budget uncertainty. In addition, the tools the governor is using — court challenges, state public authorities, and an insular advisory group â€“ make it hard for the general public to understand or participate in decisions that will affect them.

The Immediate Problem

The New York State Legislature’s budget for the state’s current fiscal year (the legislature overrode the governor’s veto) authorized a state takeover of the $2.5 billion remaining city debt service owed the Municipal Assistance Corporation. The city would refinance the $2.5 billion debt now and stretch out the re-payment schedule. This would save the city $500 million a year, for five years. The state would pay approximately $170 million a year for 30 years to pay off this debt. One explanation for the deal was that it was the legislature’s way of making up (at least for five years) for the elimination of the city’s $500 million-a-year commuter tax a few years ago.

Of course there are excellent fiscal-policy arguments against this deal. For instance, the Democratic State Comptroller, Alan Hevesi, opposes the refinancing, pointing out that it extends for another 30 years debt that was prompted by the city’s 1970s’ fiscal crisis. It will cost state (including New York City) residents $5.1 billion over 30 years. And this is long-term borrowing for one-shot, operational budget purposes, generally a fiscal sin.

But these are peculiar times. The governor himself proposed borrowing $4.2 billion to help balance the state budget (an idea accepted in the legislature’s state budget for this year), using tobacco-settlement revenues to pay off the debt over a similar long term. And the governor and state legislature two years ago authorized $2.5 billion of borrowing by the city as an emergency resource after September 11. (The city used $2 billion of that authorization for budget-balancing in fiscal years 2002 and 2003, but Mayor Bloomberg decided not to use the remaining $500 million authorization.)

The governor’s court challenge is based on arguments that the legislature’s 2003 authorization was constitutionally and legally flawed. Supporters say the authorization, while perhaps technically flawed because of a rushed drafting process, was done in a conventional fashion. The governor’s timing â€“ several weeks after the city budget was adopted â€“ is another odd element. City budget direct Mark Page has said the city has already lost $25 million, because of higher interest rates since the court challenge.

This Pataki challenge is apparently an extension, in part, of issues in two other court cases currently before two state appellate division courts, in which the budget powers of the governor and state legislature are in question. One, Pataki v. Assembly and Senate, stems from the 2001 state budget fight, and the other, Silver v. Pataki, challenges the governor’s use of his line item veto on non-appropriation bills in 1998. (John Caher’s article in the September 2 New York Law Journal explains both cases.)

The Governor and Public Authorities

The governor already had a dubious role in another substantial piece of the new city budget â€“ revenues anticipated over four years from new and retroactive rent payments from the Port Authority for use of the city’s two airports. The state comptroller’s July report (in pdf format) on the adopted budget, for instance, says $978 million of that anticipated revenue is at risk, because negotiations over such payments have gone on for years with no resolution. Since Governor Pataki single-handedly controls all New York State issues on the bi-state Port Authority, he bears substantial responsibility for the near-billion dollar risk in the city’s current financial plan.

The Independent Budget Office study notes that the Lower Manhattan Development Corporation â€“ largely controlled by the governor â€“ currently has no plans for $1.16 billion in available Community Development Block Grant disaster-related funding. (The Labor Community Advocacy Network to Rebuild New York â€“ LCAN -- is actively promoting a billion-dollar job-creation and job-development plan using this money.) And among existing Lower Manhattan Development Corporation proposals for Community Development Block Grant funding is capital money for another of the governor ’ s public authorities, the Hudson River Park Trust.

Then there is the federal authorization of $8 billion in tax-exempt Liberty Bonds, for commercial and residential development. The state and city have approved only $1.2 billion in bonds thus far, according to the city comptroller. Good Jobs New York, among other advocacy organizations, has highlighted the failure of the governor to produce affordable units of housing thus far with the Liberty Bonds â€“ and attacked the closed-door fashion in which spending decisions are made by the state finance authorities.

The city comptroller, William Thompson, concludes that “the remaining $1.2 billion of the total $3.5 billion [Community Development Block Grant] allocation still lacks well developed action plans, and are therefore considered at risk.” Since these federal dollars would have a substantial economic impact, the risk is a further loss of city tax revenues as well as unrealized jobs. The comptroller anticipates full use of the $1.6 billion in Liberty Bonds set aside for housing development in the downtown area, but sees as much as $4 billion of the $4.4 billion allocated for commercial development downtown going unused.

The Governor and School Financing

In this financial and economic context, the governor’s 16-member school finance commission serves as a kind of metaphor for his insular and anti-city political style over the past several months. While there are several well-known members of the commission, including its designated chairman, Frank Zarb, Floyd Flake, and city teachers’ head, Randi Weingarten, the commission reflects little political outreach. As the New York Times’ September 4 story indicated, “not one member of the group that brought the suit [against the state], the Campaign for Fiscal Equity, was named to the panel, nor was anyone from the Bloomberg administration, the state or city education departments, the State Legislature or the New York State Board of Regents, which oversees educational standards.”

The governor lost the suit to the Campaign for Fiscal Equity and therefore must come up with a financing plan that satisfies the court. Everybody assumes the state will have to contribute substantially more money to the city schools than it does now. But the governor’s finance commission thus far (nine additional seats are anticipated) looks like yet another heavy-handed Pataki tool that promises only more roadblocks for the city’s long-term financial plans.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

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